From state to market and back: the role of the public sector in the energy markets—the European experience*
K. TalusUCL School of Energy and Resources.
The APPEA Journal 51(2) 680-680 https://doi.org/10.1071/AJ10060
Published: 2011
Abstract
During the last few decades, the contemporary ideology behind energy market regulation in most western nations has been that the introduction of competition will contribute to security of supply. Energy will respond to the economic rules of the markets, going where the prices are highest—its use, substitution and investments responding to prices. The presentation will focus on this idea and discuss the question of whether international competition and free markets can deliver security of supply or whether public intervention and control is necessary.
The study builds on the experience of the European Union (EU). The central argument is that there are two significant caveats to this ideology. First, there are real world distortions that work against the price responsiveness of the energy investments. In the EU, these distortions have been underestimated. Second, although investments may respond to demand in the long run, they do not seem to do so in the short run.
The failure of the market-based system in the EU will be illustrated through two case studies: the Nabucco pipeline project where the European Commission has assumed the role of a state in its support of the project; and, the third legislative package for electricity and gas entering into force in 2011, which marks a clear departure from the previous regulatory regimes—these emphasised the market-based approach. The incoming regime increases the role of the state in, for example, granting the public authorities a decisive role in certain situations in accepting investment plans from transmission system operators and monitoring that they are followed in practice.
Kim Talus is a lecturer in international energy and resources law at the UCL School of Energy and Resources, Australia. Prior to joining UCL SERAus, Kim worked as a researcher at the Institute of International Economic Law (University of Helsinki) where his research focused on European Union energy law. He has also worked in private practices and at the Finnish Ministry for Foreign Affairs. Kim is the editor in chief for Oil, Gas and Energy Law Intelligence (OGEL) and serves on the editorial committee of TDM (Transnational Dispute Management). In addition to this, Kim is an active member of various professional and academic bodies—including the Association of International Petroleum Negotiators (AIPN), the Institute for Energy Law (IEL), the Energy Law Research Forum (ELRF) and the International Bar Association (IBA). He also lectures at the University of Helsinki and the University of Bonn. Kim has received several international awards for his work, including The Willoughby Prize 2005 for an outstanding article published in the Journal of Energy and Natural Resources Law, the 2008 Scholarship Award of the International Bar Association and the 2009 Article award for an article published in Defensor Legis. |
References
Case A 358, decision by the Italian Autorità Garante della Concorrenza e del Mercato of 15.2.2004.The DG Competition report on energy sector inquiry (SEC(2006)1724) 10 January 2007, p. 59.
Article 102 of the Treaty on the Functioning of the European Union states that “any abuse by one or more undertakings of a dominant position within the internal market or in a substantial part of it shall be prohibited as incompatible with the internal market in so far as it may affect trade between Member States.”
COMP/39.315-ENI. For the other recent cases, see COMP/39.316-GDF foreclosure or COMP/39.317-E.ON gas foreclosure. For a more detailed analysis of how interconnectors can be used to prevent competition see K. Talus, Vertical natural gas transportation capacity, upstream commodity contracts and EU competition law (Kluwer Law International 2011) (for gas) or K. Talus and T. Wälde, ‘Electricity Interconnectors — a Serious Challenge for EC Competition Law’, 3 Competition and Regulation in Network Industries, 2006, p. 355–390 (for electricity). See also the OGEL database for similar papers. (www.ogel.org)
For example, see A. Hauteclocque and K. Talus “Capacity to Compete: Recent Trends in Access Regimes in Electricity and Natural Gas Networks”, EUI working paper 2011. Available at: http://cadmus.eui.eu/handle/1814/15796.
Green Paper — Towards a secure, sustainable and competitive European energy network (COM/2008/0782 final).
See www.nabucco-pipeline.com.
See EU Energy Security and Solidarity Action Plan: 2nd Strategic Energy Review (MEMO/08/703, 13 November 2008).
Energy 2020: A strategy for competitive, sustainable and secure energy (COM/2010/0639 final).
For example, P. Joskow, Supply Security in Competitive Electricity and Natural Gas Markets, p. 2. Available at http://econ-www.mit.edu/faculty/pjoskow/papers.
For a discussion on this see K. Talus and T. Wälde, “Electricity interconnectors in EU law: Energy security, long-term infrastructure contracts and competition law”, 32 (2007) 1 European Law Review.
K. Talus and M. Hunt, “Ownership Unbundling: What End to the Saga?”, in S. Hirsbrunner, D. Buschle, C. Kaddous (eds.) European Energy Law/Droit européen de l’énergie (Bruylant 2011).
